The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government will hire consultants to develop a “road map” for making all state-owned enterprises (SOEs) self-sufficient and eliminate the “severe” fiscal risk they pose.

The first-ever fiscal strategy report, tabled in the House of Assembly on Wednesday, labelled the risk of “substantial losses” among SOEs - and the need for taxpayer bail-outs and support - as one of the greatest threats to the Government’s fiscal targets and consolidation strategy.

The Government has currently guaranteed some $677.4m in liabilities racked up by its SOEs, although it is hoping to cut this sum to $463.2m - a 31.6 percent reduction - by 2019 largely as a result of Bahamas Power & Light’s (BPL) planned rate reduction bond (RRB) refinancing that will remove some $203m from its books.

“State-owned enterprises (SOEs) represent a fiscal risk in terms of the potential call on the budget when financial difficulties arise and an explicit guarantee is provided to the SOEs in their borrowing activities,” the fiscal strategy report said.

“Contingent liabilities are projected at an estimated $474.5m at end-2018 and, based on existing debt levels and repayment schedules, are forecasted to move lower to $432.9m over the four- year period ending 2022.

“Cognisant of this exposure, the Government has embarked on several measures to manage these risks, including improvements in operational efficiency through enhanced cost recovery and requirements for an effective governance framework which increases accountability and transparency in their operations.”

Once BPL’s government-guaranteed debt is repaid through the RRB, the largest exposure is presented by the Bahamas Mortgage Corporation’s $160m liabilities. Others that represent a significant potential taxpayer burden include the Public Hospitals Authority (PHA) at $91.6m; the Water & Sewerage Corporation at $67.7m; Education Loan Authority at $67m; and Bahamas Development Bank at $41m.

“The Government is committed to transforming the SOEs into self-sufficient entities to reduce their fiscal impact,” the Fiscal Strategy Report said. “To that end, the Government has directed each SOE to begin looking at a move toward a cost-recovery operating model, which might include a mix of revenue enhancement initiatives, as well as measures to reduce expenditures in line with industry benchmarks. The SOEs are now formulating articulated strategies that are expected to achieve this optimized point within three to five years.

“To better frame the Government’s objectives in this area, a consulting firm will be engaged to provide an analysis of selected SOEs and authorities, and to create a road map with respect to best options for them becoming self-sustaining entities.

“Specifically, the work will entail the creation of a detailed strategic approach to cost rationalisation and cost recovery for select SOEs, consistent with global best practices for similar agencies in similar jurisdictions. Future Fiscal Strategy Reports will be able to comment more on the fiscal savings that would emanate from these initiatives.”